Banco Macro SA (BMA) 2021 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Banco Macro's First Quarter 2021 Earnings Conference Call. We would like to inform you that the first quarter 2021 press release is available to download at the Investor Relations website of Banco Macro at www.macro.com.ar/relaciones-inversores/. Also, this event is being recorded, and (Operator Instructions)

It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Gustavo Manriquez, Chief Executive Officer; Mr. Jorge Scarinci, Chief Financial Officer; and Mr. Nicolas Torres of Investor Relations.

Now I would like to turn the conference over to Mr. Nicolas Torres. You may begin your conference, sir.

Thank you. Good morning, and welcome to Banco Macro's First Quarter 2021 Conference Call. Any comments we may make today may include forward-looking statements, which are subject to various conditions. And these are outlined in our 20-F, which was filed to the SEC, and it's available at our website. First quarter 2021 press release was distributed yesterday, and it's also available at our website. All figures are in Argentine pesos and have been restated in terms of the measure in unit current at the end of the reporting period.

As of the first quarter of 2020, the bank began reporting results applying hyperinflation accounting in accordance with IFRS IAS 29, as established by the Central Bank of Argentina. For reason of comparison, figures of previous quarters have been restated applying IAS 29 to reflect the accumulated effect of the inflation adjustment for each period through March 31, 2021.

I will now briefly comment on the bank's first quarter 2021 financial results. Banco Macro's net income for the quarter was ARS 2.2 billion, 39% lower than in the fourth quarter of 2020 and 77% lower than the result posted a year ago. The bank's first quarter 2021 annualized ROE and ROA of 5.4% and 1.1%, respectively, remained healthy and showed the bank's earnings potential.

Net operating income before general and administrative and personnel expenses for the first quarter of 2021 was ARS 37.2 billion, increasing 5% or ARS 1.8 billion quarter-on-quarter, due to lower loan loss provisions and higher income from financial instruments at fair value through profit or loss. On a yearly basis, net operating income decreased 10% or ARS 4.1 billion, due to lower net interest income and lower net fee income.

Operating income after general and administrative and personnel expenses was ARS 18.9 billion, 16% or ARS 2.6 billion higher than in the fourth quarter of 2020 and 19% lower than in the first quarter of 2020.

In the quarter, net interest income totaled ARS 23.8 billion, 3% or ARS 761 million lower than the result posted in the fourth quarter of 2020 and 22% or ARS 6.6 billion lower than the result posted 1 year ago as a result of different regulations adopted by the Central Bank that set the caps on lending rates and floors on deposit rates.

In the first quarter of 2021, interest income totaled ARS 45.1 billion, 4% or ARS 1.9 billion lower than in the fourth quarter of 2020 and 2% or ARS 1 billion higher than the previous year. Within interest income, interest on loans increased 1% or ARS 184 million quarter-on-quarter. Interest income decreased 20% or ARS 5.4 billion year-on-year. In the first quarter of 2021, interest on loans represented 50% of total interest income.

Net income from government and private securities decreased 6% or ARS 1.3 billion quarter-on-quarter, due to lower income from government securities. Compared to the first quarter of 2020, net income from government and private securities decreased 31% or ARS 4.9 billion.

In the first quarter of 2021, FX gains, including investments in related financing totaled ARS 1.2 billion gain, 15% or ARS 221 million lower than in the fourth quarter of 2020. The gain in the quarter is due to the 10% Argentine pesos depreciation against the U.S. dollar and the bank's long spot dollar position. On a yearly basis, FX gains increased 60% or ARS 456 million.

In the first quarter of 2021, interest expenses totaled ARS 21.3 billion, 5% or ARS 1.1 billion lower compared to the fourth quarter of 2020 and 55% or ARS 7.6 billion higher on a yearly basis. Within interest expenses, interest on deposits decreased 5% or ARS 1 billion quarter-on-quarter, mainly driven by a 7% decrease in the average volume of time deposits, which was partially offset by a 64 basis point increase in the average interest rate paid on deposits. On a yearly basis, interest on deposits increased 61% or ARS 7.7 billion. In the first quarter of 2021, interest on deposits represented 95% of the bank's financial expenses.

In the first quarter of 2021, the bank's net interest margin, including FX, was 17.4%, higher than the 16.3% posted in the fourth quarter of 2020 and lower than the 25.2% registered 1 year ago.

In the first quarter of 2021, net fee income totaled ARS 5.9 billion, 7% or ARS 466 million lower than in the fourth quarter of 2020. On a yearly basis, net fee income decreased 6% or ARS 393 million.

In the first quarter of 2021, net income from financial assets and liabilities at fair value through profit or loss totaled ARS 4.6 billion gain, 23% or ARS 854 million higher than in the previous quarter. This gain is mostly related to higher income from government securities and investment in equity instruments, mainly the mark-to-market of our 4.5% PRISMA stake.

In the quarter, other operating income totaled ARS 1.6 billion, increasing 5% compared to the fourth quarter of 2020. And on a yearly basis, other operating income increased 5% or ARS 81 million. In the first quarter of 2021, Banco Macro's personnel and administrative expenses totaled ARS 10.7 billion, 12% or ARS 1.5 billion lower than the previous quarter, due to lower administrative expenses and lower employee benefits. On a yearly basis, personnel and administrative expenses decreased 1% or ARS 116 million, showing the strict cost control policies adopted by the bank's senior management.

In the first quarter of 2021, the efficiency ratio reached 35.7%, improving from the 38.8% posted in the fourth quarter of 2020. In the quarter, expenses decreased 11%, while net interest income plus net fee income plus other operating income decreased 3%.

In the first quarter of 2021, the results from the net monetary position totaled ARS 14.4 billion loss, 20% or ARS 2.4 billion higher than the loss posted in the fourth quarter of 2020, due to higher inflation observed in the quarter, which was 163 basis points higher than in the fourth quarter going up from 11.33% to 12.95%.

On a yearly basis, the loss relating to the monetary position increased 75% or ARS 6.2 billion (sic) [ARS 62 billion]. This is the first quarter in which the result from the net monetary position is shown pursuant to the Communication A 7211 of the Central Bank of Argentina, in which the inflation adjustment on our LELIQs and other government securities is included, which was probably shown in net income from financial instruments at fair value through profit or loss.

In the first quarter of 2021, Banco Macro's effective tax rate was 51.4%, higher than the 16.3% registered during the fourth quarter of 2020 and 36.9% registered 1 year ago.

In terms of loan growth, the bank's financing to the private sector totaled ARS 259.4 billion, decreasing 9% or ARS 25.8 billion quarter-on-quarter and 17% or ARS 54.1 billion lower year-on-year as a consequence of the economic recession that affected Argentina during 2020 and weak loan demand.

Commercial loans decreased 13% or ARS 17.9 billion, among which others stands out as loans extended to SMEs as part of the relief package given the COVID-19 pandemic started to come in. Consumer lending decreased 5% or ARS 7.6 billion. Credit card loans decreased 9%.

Within private sector financing, peso financing decreased 9% or ARS 23.9 billion, while U.S. dollar financing decreased 15% or USD 47 million. It is important to mention that Banco Macro's market share over private sector loans as of March 2021 reached 7.3%.

On the funding side, total deposits decreased 17% or ARS 94.8 billion quarter-on-quarter and increased 3% or ARS 13.2 billion year-on-year. Private sector deposits decreased 14% quarter-on-quarter, while public sector deposits decreased 33% quarter-on-quarter. The decrease in private sector deposits was led by demand deposits, which decreased 16% or ARS 37.9 billion (sic) [ARS 37.3 billion] quarter-on-quarter, while time deposits decreased 13% or ARS 29.7 billion.

Within private sector deposits, peso deposits decreased 19% or ARS 90.6 billion, while U.S. dollar deposits decreased 13% or USD 134 million. As of March 2021, Banco Macro's transactional accounts represented approximately 49% of total deposits. Banco Macro's market share over private deposits as of March 2021 totaled 5.6%.

In terms of asset quality, Banco Macro's nonperforming to total financial ratio reached 0.92%, and the coverage measured -- the coverage ratio measured as total allowances under expected credit losses over a number of foreign loans under Central Bank rules totaled 387.82%.

Consumer portfolio nonperforming loans deteriorated 16 basis points, up to 0.89% from 0.73% in the previous quarter, while commercial portfolio nonperformance loans deteriorated 10 basis points in the first quarter of 2021.

Asset quality continues to be positively affected by recent measures adopted by the Central Bank of Argentina in the current pandemic context, particularly the 60-day grace period that was added to debtor classification before a loan is considered as nonperforming.

In terms of capitalization, Banco Macro accounted an excess capital of ARS 157.4 billion, which represented a total regulatory capital ratio of 37.7% and a Tier 1 ratio of 30.3%.

It should be noted that on April 30, 2021, the shareholders' meeting approved a dividend of up to ARS 10 billion in cash or dividend in kind. The ARS 10 billion from the dividend will be deducted from shareholders' equity in the second quarter of 2021. The effective distribution of the dividends as approved by the shareholders' meeting is subject to Central Bank's authorization. Pursuant to Communication A 7181 from the Central Bank of Argentina, the distribution of profits by financial entities is suspended until June 30, 2021.

The bank's aim is to make the best use of the excess capital. The bank's liquidity remained more than appropriate. Liquid assets to total deposits ratio reached 94%. Overall, we have accounted for another positive quarter. We continue showing a solid financial position. Asset quality remained under control and closely monitored. We'll keep on working to improve more our efficiency standards, and we'll keep up well at a nice deposit base.

At this time, we would like to take the questions that you may have.

(Operator Instructions) And the first question will come from Pedro Nóbrega (sic) [Gabriel da Nóbrega] with Citigroup.

This is Gabriel here. So I just wanted to check in on the asset quality front on this quarter. We saw -- you booked almost no provisions. So if you could just maybe give us a bit of color here. Did you maybe reverse any provisions, which you had done in the last year? Or are just really confident and then comfortable with your current risk profile that you don't need to create these provisions?

And then just lastly, how should we think of provisions going forward? I'm going to ask a second question afterwards.

Gabriel, this is Jorge Scarinci. Yes, the answer to your question is basically that we think that we have a reasonable level of provisioning. We were very conservative in 2020. So considering the situation of our loan book, we consider that the level of provisions is fairly enough, considering what is going on now and what we are expecting for the rest of the coming quarters. Going forward, I would assume as a cost of risk estimate between, let's say, 2% and 2.5% for the whole 2021.

All right. That's very clear. And as for my second question, looking at your capital base, I understand you have already declared these on dividends. But even if we were to subtract these dividends from your capital, your Common Equity Tier 1 ratio would still be above 20%. And so I just wanted to understand are there any other strategies, which the bank is pursuing on this excess capital? Do you maybe think that an acquisition makes sense right now?

There's not a lot to do considering the regulations established by the Central Bank. I mean inorganic growth has been always an element present in Banco Macro's strategy for the last 20 years. So that could be a strategy. Of course, we have -- we are open to any possibilities. However, we have to see if there is any bank willing to leave the game, but that could be an alternative. But apart from that, we are not finding for the moment, another attractive element in order to put -- where to put the excess capital, honestly.

The next question will come from Ernesto Gabilondo with Bank of America.

Jorge and Nicolas, my question is on inflation. When looking to April's inflation, it's already at 46%. So a little bit higher when compared to March. Do you expect it could be higher in the second quarter and then normalizing for the rest of the year? Just want to know how would it be impacting the results of the net monetary position? And then if also you can share us your expectations for interest rates and the effective tax rate in the coming quarters will be very helpful?

Ernesto, in terms of inflation, yes, what we -- you know that we do not measure inflation. But according to the local economies that consider those mechanism of trying to estimate inflation, they say that the first quarter was the highest quarter. The coming quarters should be showing a bit lower of inflation. Expectations for 2021 are between 45%, 47%, approx.

So we should be seeing lower inflation levels second, third and fourth quarter. So that is going to have a, let's say, positive impact in our income statement, basically because the level of the monetary position is going to be -- should be below the level that we posted in the first quarter.

In terms of the guidance for interest rates, honestly, for the moment, we are not seeing any movement on interest rates. In the second quarter, we think that the level is going to be maintained. However, according to some also local economies, they are expecting for some increase in the third and fourth quarter of the year, maybe between 100 and 200 basis points. Honestly, I don't know. I mean when you look at the macroeconomic variables, we think that a higher level of nominal interest rates should be needed here.

However, the Central Bank is not showing any movement or any guidance in that front. But according to local economies, they are saying that in the third, fourth quarter, we should be seeing an increase in interest rate.

Going forward, I would expect for second, third and fourth quarter of this year, in terms of margins, I would assume an average between what we saw in the fourth quarter of last year and the first quarter of this year, considering the current level of interest rates.

In terms of effective income tax rate, yes, I mean, you know that here in Argentina, taxes is a bit of a mess, and we have a kind of an accounting balance for taxes and other accounting balance for P&L. I mean, for estimation purposes, I would assume a 35% -- between 35% and 37% income tax rates as an average for the year. That is what we are expecting for this year according to what the local version of IRS is -- has in its talks.

Perfect. Very helpful. And for my second question, is there any update related to regulation? For example, if we should expect subsidiary to continue or cap rates or floors or anything else?

I mean we think that for the moment, the regulations are going to be maintained. Honestly, we do not know what will happen by the end of the year after midterm elections. But for the second quarter, at least, a big part of the third quarter, we are seeing that the present regulations are going to be maintained.

The next question will come from Alejandra Aranda with Itaú.

Jorge and Nicolas, just to have a little bit of color on what you're seeing on the deposit side? And how are you thinking about the liability management?

And then the second thing is that the treasury has ARS 1.2 billion to roll over in the next 3 months, which looks quite challenging, and we saw a measure yesterday from the Central Bank that it was really inspiring. So what do you expect in terms of additional measures going forward? What do you think that there -- that we could expect from them in the coming months?

Alejandra, I mean, in terms of deposits, what we are seeing, of course, is the nominal level of deposits in the system is growing. In terms of our asset and liability management, we are like trying to find which is the best level of deposit that we should have because, as you know, the loan demand is picking up, but in a very timid speed. So if we increase a lot of deposits, we have to apply that excess liquidity either in repos to the Central Bank or funding the treasury in order to have an attractive interest rate in order to compensate the level of the deposit rate.

Therefore, we are not aggressive or that aggressive in terms of increasing our deposit base. For the moment, we are trying to find out which is the best level, always keeping an eye as we -- as always have done on the profitability of the bank. We do not want to increase market share, if that is going to affect the profitability of the bank. So in first place, we put profitability.

In terms of your second question, according to the regulation that the Central Bank put out yesterday, I mean, we understand that the treasury needs a lot of financing in the coming future, as you mentioned. And this is a kind of a voluntary element in order to reduce the level of LELIQ and increase the level of local public bonds in pesos and put that as a way of the reserve requirement at the Central Bank.

Of course, we are analyzing the measure. We consider that the risk -- having the Central Bank as the debtor is better than having the treasury as a debtor. And I think that public-owned banks are going to use this -- the regulation, but I don't know what will be the reaction of the rest of the banking system.

So again, we still don't know what we are going to do. We are going to be, of course, pretty conservative and trying to find out which is the best for Banco Macro. And of course, keeping our close eyes on depositors that this is the key question here, if depositors would feel comfortable with their deposit being applied on these reserve requirements in the form of public sector bonds. So that is what we are going to keep an eye on.

The next question will come from Alonso Garcia with Crédit Suisse.

My question is on the volume side. I mean we observed not only in Banco Macro but in the rest of your peers, a slow start in loan volumes in 2021. I know that seasonality has something to do with that. Also the fact that you report in real terms and inflation was even higher in the first quarter compared to the fourth quarter. But is there something else? Could you please comment on how you are seeing demand dynamics, both on the commercial side and on the retail side?

And also on your side, how is your risk appetite at the moment? And how you expect this to evolve for the remainder of the year?

Alonso, I mean, loan demand is, of course, pretty tight to expectations, that is not new. Expectations here in Argentina for the moment is a recovery in GDP compared to the big decline that Argentina suffered in 2020, but the recovery of the GDP returns is expected to be between 6% and 7%.

Inflation, as I mentioned before, between 45% and 47%, that is what the market is expecting. So for the moment, we continue to see companies demanding working capital, short term, in pesos. You know that having the midterm election around the corner is something that is a big question mark there, depending on the result, what will be the new policies that the government could be taking.

In terms of consumers, what we are seeing is a bit of an increase in consumer demand tied to the increase in the nominal level of salaries, tied to the negotiations between the users and the companies. But you have to consider that we continue to have the pandemic with us. You know that the last 9 days, and this is going to last next Sunday, there was a big kind of a close of the economy here in Argentina and the commuting in order to reduce the level of people having this COVID-19.

The level of the vaccine or the amount of the population having 2 doses of vaccine here is slightly below 3%. So that is going at very slow motion or at slow speed. So that is also affecting the behavior of consumers.

So we think that by the end of the year, loan increase in the Banco Macro is going to be slightly positive in real terms. What we expected to see between the third and the fourth quarter, a pickup in loan demand.

The next question will come from Carlos Gomez with HSBC New York.

My question is a follow-up on the alternative to your treasury pesos for your liquidity requirements. We understand that it is optional at this point, and you have made very clear that you prefer the credit of the Central Bank. Do you think there's a possibility that in the future, it might be an obligation that you might have to buy paper from the government? And if that is the case, do you have any legal recourse against that?

Carlos, yes, for the moment, it's voluntary. Honestly, we don't know if in the future, it's going to be -- we're going to be forced to that. If I have to guess, I would say no, because we have these type of experiences in the past in Argentina, and the conclusion or the ending of that was not good, not for the country nor for the banking sector. But if that is the case, we are going to see if there is a legal alternative to go. And if it is, we are going to go for that. That is what I'm guessing for the moment.

But again, I think that it's going to be or it will continue to be voluntary. We are not -- I mean, we are signing a very low probability of occurrence that it is going to be -- that the banks are going to be forced for that.

That's very clear. And if I can follow-up, you had a particularly high inflation adjustment this quarter? I understand that there was a change in accounting, and it was bigger also in the fourth quarter. But is this a normal level of adjustment? Or should we expect lower in the future, not only because inflation goes down but because there was something especially in the quarter?

No, no, no. Nothing special. And going forward, we think that this -- with the decline in inflation, the level of this monetary loss is going to go downwards.

The next question will come from Santiago Petri with Templeton.

I mean my question is related to this new regulation. Can you remind us what's the percentage of reserve requirement now? And does this new regulation has already stated up to how -- what percentage of these reserve requirements can be integrated with financial assets?

And finally, what's the limit? Can you remind us what's the limit to the total public sector asset holdings? And if this reserve requirement eats into this limit?

Santiago, in terms of LELIQ, we can have up to 45% of transactional deposits and 27% of time deposits. And for the moment, we have a level of close to ARS 125 billion in LELIQs. I mean, going forward, we are going to continue -- these regulations starting next Tuesday, the 1st of June, we are going to continue as we are working right now with LELIQs. No exposure in -- or not putting the sovereign bonds there. And honestly, we think that this is -- this regulation is more targeting Banco Nación or maybe Banco Provincia. But they have a huge amount of sovereign bonds in pesos.

And besides, this is a way of leaving more room for the treasury to get extra financing and reducing the financing of the Central Bank through LELIQs. But for the very beginning of June, we are going to continue as we are working right now.

Excellent. Sorry, can you remind us the limit to public sector holdings at the moment? I mean it's capped, no? So what is there, the limit?

In terms of the public sector, I mean, for -- we have ARS 130 billion in public bonds in pesos -- denominated in pesos, and that is approx below -- it's around 21%, 22% of total assets.

The next question will come from Rodrigo Nistor with AR partners.

My question is regarding the strategy. Well, it seems that many of the variables that determine the banking sector results like inflation, the level of monetary policy credits are not under your control. So my question is, what is your approach with the variables you can control? What can you share with us on that front?

Rodrigo, I mean, no, what we are trying to do, and we did that in 2020, and we are trying to do in 2021. I mean because of the pandemic that we are undergoing and how that is affecting the economy as a whole as a country is to work maybe in expenses to work on the quality of -- on the credit risk, trying to manage the best level of the deposit that we have, I mean, asset and liability management. And basically, again, always looking on the profitability of the bank, and we are not caring about market share.

So that is something that in Banco Macro, we have been looking for that in the last 30 years. And the idea is to continue for that. And if there is a possibility to use the excess capital in any of the alternatives, we are going to study and go for the best. And -- so that is what we are working on a daily basis here in Banco Macro on those issues that I mentioned before.

As there are no more questions at this time, this concludes the question-and-answer session. I would like to turn the conference back over to Mr. Nicolas Torres for any closing remarks. Please go ahead, sir.

Thank you all for your interest in Banco Macro. We appreciate your time and look forward to speaking with you again. Good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.